UPDATED: Rishi Sunak’s Spring Statement 2022 was a “missed opportunity” to address huge cost pressures on companies and to rebuild the economy, say business leaders, describing Wednesday’s announcements as “underwhelming” and “disappointing”.
The Chancellor ignored pleas for immediate tax cuts and energy grants to help offset rising inflation. Businesses face a fourfold increase in energy costs and confidence has weakened because of the war in Ukraine.
There was little for businesses struggling with soaring energy costs, congested supply chains and staff shortages. Businesses are not cushioned from the impact of soaring energy prices by the regulatory price cap.
The raising of the thresholds for payment of national insurance for employees may help mitigate the impact of the 1.25 percentage point increase in the tax rate on individuals but not for employers:
And the pledge to overhaul the system of R&D tax credits was made last October, as was the extension of credits to cover data purchases and cloud computing.
A promise of longer-term reforms to business taxation to incentivise investment next year was welcomed, but was said to be planned too late to address the challenges businesses face right now.
Shevaun Haviland, director-general of the British Chambers of Commerce, said that the Spring Statement 2022 was “a missed opportunity to rebuild and renew the economy and ensure business has the resilience to weather the uncertain and volatile times ahead”.
Fiona Graham, director of external affairs and policy of the Institute of Family Business, described Wedneday’s Spring Statement 2022 as a “missed opportunity”.
Tony Danker, director general of the CBI, told the BBC that although there was some good news in the long run, such as examining how to increase business investment and improving the R&D tax credit, there was nothing much to improve business confidence today.
Danker told Newsnight: “We’re going to struggle to help small business owners unless we tackle the energy problem. When it came to help for small businesses, I’m not sure there was enough today.
“I’m not sure there was enough to change the equation of uncertainty in the economy. The biggest stuff for business was deferred. The Chancellor wants to get more productivity growth, skills and innovation but he’s put that off until October. Really nothing was done today when it comes to the two most pressing needs for businesses. First, they’re facing a fourfold increase in energy costs. And he needs to stabilise business confidence, which has dropped in the last month because of the Ukraine war.”
Meanwhile, thousands of jobs in hospitality and tourism could be lost after the Chancellor decided not to extend the existing VAT cut designed to help the sector recover from the pandemic, trade body UKHospitality warned.
Businesses in those sectors will return to paying 20 per cent VAT from next month, up from 12.5 per cent.
The national insurance threshold will be lifted by £3,000 to £12,570 in what Mr Sunak called the “largest single personal tax cut in a decade”. The change will raise the NICs threshold in line with the point at which people start paying income tax. The measure will give 30m people £330 each, the Chancellor said, at a total cost of £6bn. The change will come into effect in July.
The 1.25 per cent increase in national insurance contributions from April is actually 2.5 per cent for employed owner/managers paying PAYE as it applies to both employer and employee contributions.
Melissa Blissett, senior consultant on pay gap analytics at Barnett Waddingham, pointed out that the new national insurance threshold will particularly support women, who make up a higher proportion of lower earners and have been left especially financially vulnerable following the pandemic.
However, the Chancellor only mentioned the impact on employed people, leaving a question mark over whether the £12,570 national insurance threshold applies to the self-employed.
Christine Cains, tax partner at PwC, described both effectively increasing and cutting national insurance at the same time as “curious”.
Fuel duty will be cut by 5p per litre, the largest reduction in history. This will last for 12 months and take effect from 6pm tonight The cut to fuel duty will reduce cost of filling up an average tank, which has risen to £98.43 for diesel and £91.87 for petrol, by £3.30, according to RAC Fuel Watch.
Rishi Sunak said the UK’s basic rate of income tax would be cut from 20 per cent to 19 per cent — albeit not until 2024. The chancellor called that a £5bn tax cut for more than 30mn people.
Employment allowance relief, which allows small businesses to reduce their national insurance contributions each year, will be increased from £4,000 to £5,000, giving a tax cut of up to £1,000 to 500,000 small businesses.
R&D tax credits to be reformed
Research and development tax credits are to be reformed with the potential to make the R&D expenditure credit more generous this autumn.
Dr Joe Marshall, chief executive of the National Centre for Universities and Business (NCUB), said: “It is essential that R&D tax reliefs are not cut in future … this ambition needs to be signalled to businesses now, with a clear commitment that R&D reliefs will be increased and not be cut in the autumn”.
The Chancellor re-iterated the 50 per cent business rates discount for the retail, leisure and hospitality sector as of 1 April but with a cap of £110,000 per company.
Business rates will be reevaluated in 2023, based on rental values of 2021, which should see bills coming down for many in struggling sectors.
John Webber, head of business rates at Colliers said, “Although this was primarily a ‘consumer led’ Spring statement addressing issues such as costs of living rises and high energy bills, it was disappointing that the ‘elephant in the room’ – business rates – was largely ignored, despite the impact that ultra-high rates bills has had on businesses in recent years.”
Business reaction to Spring Statement 2022
Michelle Ovens, founder of Small Business Britain, said that moves to increase the employment allowance, reduce fuel duty and raise the national insurance threshold were welcome and will go some way to help businesses deal with rising costs.
“In particular, it is good to see the immediacy of this rise in employment allowance,” Ovens said.
But Stephen Page of SFC Capital poured cold water on the Spring Statement 2022, saying that talks about wanting to “speak to business” but that he’s said that before and is “yet to happen to any meaningful way” at least for early-stage businesses.
Nicky Chenery, general manager EMEA at SafetyCulture agreed, saying “little business support was announced during this year’s Spring Statement”.
Mark Davies, insolvency partner at law firm Aaron & Partners, said that although many business owners will welcome a tax cut worth up to an estimated £1,000 for half a million SMEs, as well as a 50 per cent discount in business rates up to £110,000 for retail, hospitality and leisure sectors, “there had been hopes however that he would have gone even further, by maintaining VAT for hospitality businesses at the rate of 12.5 per cent and for more SMEs to be taken out of the business rates system, some will therefore be really disappointed that those have been omitted”.
Emma Jones, founder and CEO of small business network and business support provider Enterprise Nation, said her members were describing today’s Spring Statement 2022 as “underwhelming” and “disappointing”.
Jones said: “We wanted a confidence boost for small business today but what we got was confirmation of existing schemes and reliefs. The employment allowance will be welcome but today’s Statement was more about politics than enterprise.”
Spring Statement 2022 live blog
Hello and welcome to Small Business’s live coverage of the Chancellor’s Spring Statement 2022.
Rishi Sunak is expected to stand up in Parliament at around 12:30pm today and outline his changes to the Government will fund the economy, given the war in Ukraine just as the punch-drunk economy crawls away from the Covid crisis.
13:07: The private sector has to play its part in the lack of growth in the British economy, said Sunak.
Mr Sunak announced that he would be consulting on various issues such as the lack of tech skills in Britain, which are a third lower than the European average, reform of the apprenticeship levy, and reform of the R&D tax credit to expand it to cloud computing and data costs.
“Innovation accounted for half of the UK’s productivity over the past 50 years,” said Mr Sunak. “Weak private investment is a longstanding problem for the UK.”
Employee Allowance to be increased by £1,000, helping 500,000 small businesses.
13:01: National Insurance threshold to be increased to £12,500 per employee, worth over £330 per year per employee.
12:59: Mr Sunak restated his ambition to reduce taxation by the end of the current Parliament, who said he was publishing a tax plan.
12:56: “We should prepare for the economy to worsen in the coming year,” warned Rishi Sunak, who said his priority was to keep borrowing and debt down.
12:54: Household Support Fund to be doubled to £5bn from April but no mention of any help for business when it comes to energy price rises.
12:50: Growth according to the OBR will be 3.8 per cent in 2022, 1.8 per cent in 2023, 2.1 per cent in 2024 and 1.8 per cent in 2025.
OBR also expects inflation to hit 7.4 per cent this year.
Fuel duty to be cut by 5 per cent from midnight today – the biggest cut in fuel duty ever – until March 2023.